How Does Credit Card Limit Affect Credit Score?

A large purchase has just come up, and you need to put it on the credit card. However, you’re very close to the card’s limit. In fact, this purchase may cause you to exceed your credit card limit. It’s important to understand your credit score and how it’s impacted by these spending habits. How does credit card limit affect credit score? Learn everything you need to know right now.

Dropping Credit Score

The immediate impact on your credit is a drop in your score. If you spend even one penny over your limit, your score can drop 40- or 50-points. This point difference is huge if you’re considering buying a house or vehicle in the near future.

Your credit score may not immediately drop because it may take your creditor a few weeks to notify the credit bureaus. During this time before the credit bureaus are notified, you may contact your creditor to clear up the issue before it is reported.

Utilization Concerns

How does going over credit card limit affect your credit score? With industry terms, your utilization percentage becomes a problem. Utilization is the ratio of your card balance with the available credit. If you go over your limit, your utilization value is 100 percent or higher. The credit bureaus frown upon these numbers, and as a result, your credit score goes down.

In some cases, overutilization will appear on your credit report. This permanent part of your record can be an issue in the future.

Creditors’ Reactions

Creditors will take several actions to rectify the situation. One action that they are sure to take is to charge an overspending fee. As a result, the charge may put you further into debt and increase your utilization percentage. Additionally, a creditor may lower your credit card’s limit. Consequently, having your credit limited lowered by any amount will make overutilization look worse than before.

It is important to communicate your financial situation to your creditor. The promise of a payment in the near future may delay a creditors action against you.

Paying Attention to Late Fees and Interest

You may have overspent on your credit card, but it’s only by a few dollars. Regardless of the billing cycle’s date, pay down the card to get the balance below the limit. Late fees and interest will accrue from the moment that the charge hits the card. You don’t want those fees to accumulate either. They can be expensive over several billing cycles.

Now that you know how does going over credit card limit affect your credit score. It’s important to understand that in order to resolve your situation by paying down your card’s balance as soon as possible. With this in mind, your credit score will improve with time. If you continue to find yourself meeting your credit card limit, consider requesting a higher credit limit. Your score will be slightly affected; however, it will positively impact your utilization percentage.

Creating a budget is one of the simplest things that you can do for your credit score. It gives you a plan for spending less than you make. Although this scenario seems difficult, you can control your spending when you understand those limits. A better credit score will be your reward.

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